Corcept Therapeutics Incorporated (CORT) Q1 2017 Earnings Report, Transcript and Summary

Welcome to the Corcept Therapeutics Conference Call. My name is Victoria and I will be your operator for today's call. At this time, all participants are in a listen-only mode. And later we will conduct a question-and-answer session. [Operator Instructions] Please note that this conference is being recorded. And I will now turn the call over to Charlie Robb. Charlie, you may begin.

Thank you. Good afternoon, my name is Charlie Robb, Corcept's Chief Financial Officer. With me today is Dr. Joseph Belanoff, our Chief Executive Officer. Thank you all for participating in the call. Earlier today, we issued a news release giving our first quarter financial results, our a corporate update and an upward revision of our 2017 revenue guidance. For a copy of this release, go to corcept.com and click on the Investors' tab. Complete financial results will be available when we file our first quarter Form 10-Q. Today's call is being recorded. A replay will be available through May 15, at 1888-843-7419 from the United States and 1630-652-3042 internationally. The passcode will be 44704595. Before we begin, I want to remind you that any statements made during this call that are not statements of historical fact are forward-looking statements subject to known and unknown risks and uncertainties that might cause actual results to differ materially from those expressed or implied by such statements. Forward-looking statements include statements regarding our preliminary financial results and our revenue guidance and expense estimates for 2017 and beyond, the anticipated contributions of our sales organization, the cost, timing and results of preclinical and clinical trials, whether conducted by us or by independent investigators, including our clinical trials of CORT125134 to treat patients with Cushing's syndrome and solid tumor cancers. The clinical attributes and advancement of our other selective cortisol modulators including CORT118335 and CORT125281, the protections afforded by Korlym's orphan drug designation for Cushing's syndrome and our other intellectual property rights including the composition of matter patents covering our selective cortisol modulators and patents concerning the use of cortisol modulators to treat patients with Cushing syndrome, triple negative breast cancer, castration-resistant prostate cancer and other indications. These and other risks are set forth in our SEC filings, which are available at our website or from the SEC's website. We disclaim any duty to update forward-looking statements made during this call. Now I'll review our financial results. Corcept's revenue in the first quarter was $27.6 million compared to $16.1 million in the first quarter of last year, 72% increase. Our first quarter GAAP net income was $0.04 per share compared to GAAP breakeven in the first quarter of 2016. Excluding the non-cash expense of stock-based compensation and accreted interest on our capped royalty financing obligation, our non-GAAP net income for the first quarter was $0.06 per share, up from $0.02 per share in the first quarter of last year. Our cash and investments at quarter end increased to $57.3 million, up from $51.5 million at December 31, 2016 and $40.7 million at the close of the first quarter last year. Our increase in cash is after payment of $4.8 million under our royalty obligation, which we're on track to retire completely with our next quarterly payment. We expect our revenue growth to continue. Based on our strong commercial performance in the first quarter and our expectations for the rest of the year and beyond, we have increased our 2017 revenue guidance to between $125 million and $135 million. As we have said in past calls, we believe revenue from our Cushing's syndrome business together with our cash on hand will be sufficient to fund our planned activities, which include fully funding our Cushing's syndrome franchise, conducting phase 2 trials of our proprietary selective cortisol modulator CORT125134 in both Cushing's syndrome and solid tumor cancers, advancing to the clinic our next generation cortisol modulators including CORT125281 and CORT118335 and repaying the balance of our royalty obligation. I will now turn the call over to Dr. Joseph Belanoff. Joe?

Thank you Charlie and thank you all for joining us. Corcept had an excellent quarter. As Charlie mentioned our revenue increased 72% to 27.6 million. We generated GAAP net income of $0.04 per share and non-GAAP net income of $0.06 per share. Our cash and investments increased by $5.7 million even as we funded our growing clinical development programs. We now raise our 2017 revenue guidance to between $125 million and $135 million and we continue to anticipate significant growth in 2018, 2019, and beyond. These results are especially impressive because we produced them in the first quarter of the year which is our most challenging quarter commercially. Every January many insurance companies require patients to obtain reauthorization of their Korlym coverage. This practice is common for often medications. Even though we help patients navigate this bureaucratic process and in many cases insurance coverage continues without interruption, some patients briefly lose coverage. In keeping with our guiding principle that the health of our patients comes first, we provide Korlym free of charge to patients whose insurance coverage temporarily lapses. But our first quarter revenue was reduced while we cleared this annual insurance hurdle. As was true in prior quarters, our Cushing's syndrome business excelled because our clinical specialist continue to become more productive. Cushing's syndrome is a complex disease. Even a highly skilled clinical specialist must spend significant time with a physician, often five to seven visits before that physician writes their first Korlym prescription. Since Cushing's syndrome is a chronic illness and Korlym is a chronic treatment for it, it takes some time often four months or longer before the full impact of the patient is seen - full economic impact of the patient is seen. We now have 31 clinical specialists and continue to hire experienced high-quality candidates as we identify them. The latest class of 5 which trained in the fourth quarter of 2016, we look forward to their contributions later this year and beyond. But I do not want my justified attention to the talent and hard work of our commercial team to have skewered two other fundamental reasons for our success. First, Korlym is an ineffective medication. For almost all patients it works very well. For some, it is a life transforming. As you'll recall Cushing's syndrome is caused by a tumor that produces either excess cortisol or ACTH, a hormone that causes the body to produce cortisol. Symptoms vary from patient to patient and include impaired glucose tolerance, high blood pressure, central obesity, increased fat around the neck, thinning arms and legs, weak muscles and severe fatigue. Irritability, anxiety, cognitive disturbances and depression are also common. Hypercortisolism can affect every organ system in the body and can be lethal if not treated. Korlym works by competing with cortisol at the glucocorticoid receptor, GR for short. The receptor to which cortisol binds when cortisol levels are elevated. Korlym modules the effects of cortisol and a patient's symptoms abate. In our Phase 3 trial, 87% of the patients as adjudicated by independent outside experts experienced significant clinical improvement. Remember, many of our patients began taking Korlym after therapies such as ketoconazole, a generic anti-fungal agent and has the side effect of lowering cortisol levels by inhibiting cortisol production failed them. The fact that Korlym can help patients after the traditionally used cortisol synthesis inhibitors have failed it's something physicians remember and it's one of the reasons first time prescribers often become multiple prescribers. A second important reason for our growth is that the physicians have become more sensitive to the dangers of less severe hypercortisolism which is significantly more prevalent in the severe cases that until recently defined most doctors understanding of the disorder. It's increasingly understood that even moderate or mild cortisol excess, a condition many physicians use to dismiss with a watch and wait stance, is highly likely to produce detrimental symptoms over time. Important papers published by Dr. Diana Lopez in the Annals of Internal Medicine and by Dr. Valentina Morelli in the Journal of Clinical Endocrinology and Metabolism reviewed the health outcomes of patients with mildly accessible cortisol activity and down significantly increased morbidity and mortality. Awareness of this fact is causing many physicians to take a second look at patients in their care who exhibit one or more symptoms of Cushing's syndrome such as glucose intolerance or hypertension but who have not responded to conventional therapies for those conditions. In many cases they discover that these patients have demonstrably excessive cortisol activity. As many of you know we are advancing a proprietary compound CORT125134 that we believe will greatly expand the market for cortisol modulators as a treatment for Cushing's syndrome. CORT125134 is a selective cortisol modulator that may offer Korlym benefits without some of its drawbacks. Korlym modulates activity at the progesterone receptor, abbreviated as PR, as well as GR. In some women, Korlym's affinity for PR causes endometrial thickening and irregular vaginal bleeding. These side effects are not life threatening and are manageable but patients and physicians would strongly prefer to avoid them. Affinity for PR is what makes the active ingredient in Korlym the abortion pill. A drug that effectively modulated cortisol but had no affinity for PR and none of the abortion pills medical and political toxicity would undoubtedly be a superior medication. CORT125134 Phase 2 trial is a single-arm dose ranging study that will enroll 30 patients at sites in the United States and Europe. Enrolment is in progress and we expect results by the end of this year. We are also developing a clear validated assay that we believe will become a powerful tool for diagnosing and optimally treating patients with Cushing's syndrome. The assay will measure activity of the gene FKBP5. Cortisol stimulates FKBP5 gene expression. In healthy subjects in our Phase 1 study, FKBP5 levels increased substantially when patients were administered prednisone, a synthetic analog to cortisol but remained unchanged when Korlym or CORT125134 was co-administered with prednisone. This is a very strong indication that CORT125134 will act similarly to Korlym in treating patients with Cushing's syndrome. Korlym works by reducing cortisol's activity. This is obvious to the doctor as they see their patient symptoms improve. However because GR modulators like Korlym or CORT125134 do not reduce cortisol levels, the patient's improving health is not accompanied by a decrease in cortisol levels. Our expectation is that FKBP5 expression will decline as cortisol actively returns to normal levels and the patient's symptoms abate. We believe our assay will among other things help physicians monitor the reduction in cortisol activity and arrive at an optimal dosing regimen. We expect work on this - we expect to complete work on this assay this year. I will now turn to our oncology program. There are two mechanisms by which cortisol modulation may prove to be an effective oncology therapy. First, in cancers or tumors expressed GR such as triple negative breast, ovarian, and pancreatic cancer, cortisol stimulates genes that retard apoptosis, the programmed cell death that many chemotherapies are intended to provoke. Preventing the stimulation of these apoptosis suppressing genes by adding a cortisol modulator to a chemotherapy regimen should allow that regimen to achieve its optimal effect. Second, cortisol modulation may help the immune system fight cancer. As you know there is much interest in oncological therapies that stimulate the body's immune system to fight the disease. Cortisol suppresses the immune system. The physiological and psychological stress of cancer and its treatment raise cortisol activities above normal levels creating even greater immunosuppression. Cortisol modulators counter this effect. And cancers that are particularly susceptible to the body's immune response such as melanoma, cortisol modulation may be useful even without a companion agent. The phase 1/2 trial of Korlym in combination with eribulin to treat patients with triple negative breast cancer that we completed last year showed the combination of Korlym and chemotherapy was clinically active and deserved further study. Investigators at the University of Chicago are now leading a definitive study. With funding from Celgene, they and their investigators are conducting a double-blind placebo controlled multicenter Phase 2 trial of Korlym in combination with nab-paclitaxel, Celgene's drug ABRAXANE in 64 patients with advanced triple negative breast cancer. We are providing Korlym. While the University of Chicago researchers investigate the use of Korlym in triple negative breast cancer, we are advancing CORT125134 in combination with ABRAXANE to treat patients with a range of solid tumor cancers. Our trial is currently in its dose finding phase. We expect open expansion cohorts by the end of the year. Although the disease targets have not yet been chosen, triple negative breast cancer, ovarian cancer, and pancreatic cancer are likely targets. In addition, we may initiate a clinical trial of CORT125134 in combination with a checkpoint inhibitor. Cortisol modulation may also help treat castration resistant prostate cancer which is a particularly serious form of the disease. Because androgen stimulate prostate tumor growth, androgen deprivation also known as chemical castration is a common treatment for prostate cancer. Investigators at the University of Chicago showed and Charles Sawyers' group at Sloan Kettering confirmed that very early in treatment with the androgen receptor antagonist enzalutamide colonies of tumor cells emerge in which cortisol through its stimulation of GR is the primary growth factor. Combining a cortisol modulator with an androgen modulator such as enzalutamide, the Astellas Medivation drug, XTANDI from the outset of treatment may block this cancer escape route. University of Chicago investigators are leading an 84 patient controlled multicenter Phase 2 study of Korlym combined with XTANDI to treat patients with metastatic castration-resistant prostate cancer. The Department of Defense and the Prostate Cancer Foundation are funding the trial. Astellas is providing XTANDI, we are providing Korlym. Following very promising preclinical results, we are also advancing one of our own proprietary selective cortisol modulators, CORT125281 as a treatment in combination with XTANDI for this disease. Phase 1 for this compound should begin next quarter. As a reminder, we have exclusively licensed intellectual property from the University of Chicago covering the use of any cortisol modulator in combination with any anti-cancer agent to treat patients with triple negative breast cancer and have any cortisol modulator and any androgen deprivation agent to treat castration-resistant prostate cancer. For the past few quarters, I've reminded you that CORT118335 another of our proprietary selective cortisol modulators is very active in animal models of fatty liver disease and antipsychotic induced weight gain. Serious disorders that affect millions of people in the United States. CORT118335's phase 1 trial will begin early next quarter. Should the results be positive, I'll have more to say about our plans for advancing this exciting compound in coming quarters. To sum up, Corcept had an excellent first quarter. Despite the commercial challenges posed at the start of every year by insurance reauthorizations, our revenue grew to 27.6 million, an increase of 72% from the first quarter of last year. We have increased our 2017 revenue guidance for the second time this year to between $125 million and $135 million. We generated a GAAP profit for the quarter of $4.4 million and we expect - continue to expect our Cushing's syndrome revenue to fully fund our planned activities. We will soon have results of our phase 2 trial of CORT125134 in Cushing's syndrome. CORT125134 promises to offer Korlym's efficacy, but without some of its side effects. Importantly, it is also not the abortion pill. We are also developing a gene expression assay that will help physician's diagnose and more effectively treat patients with the disorder. Successful development of CORT125134 and of our assay will, in our view, significantly expand the Cushing's syndrome market and extend our hold on it for years to come. University of Chicago investigators are leading a Celgene financed double-blind placebo-controlled multi-center phase 2 trial of Korlym in combination with Abraxane. Our trial of CORT125134 in combination with Abraxane continues to enroll patients and we expect open expansion cohorts by the end of the year. University of Chicago investigators are also leading a multi-center controlled phase 2 trial pairing Korlym with Xtandi to treat patients with castration-resistant prostate cancer. We plan to begin phase 1 testing of CORT125281 and if results are positive, begin a phase 2 trial of CORT125281 in combination with Xtandi to treat patients with a serious disease. Finally, one of our most promising proprietary compounds CORT118335 will begin its phase 1 trial early next quarter. If the results are positive, we will advance it to phase 2 for the treatment of fatty liver disease and potentially other metabolic disorders. Thank you. I'll stop now to answer questions.

[Operator Instructions] And our first question comes from Tazeen Ahmad from BoA. Please go ahead.

Hi, guys. This is Peter Stapor on for Tazeen. Congratulations on the strong quarter. I have a few questions related to some of the metrics that have been driving revenue guidance. So if you guys could talk about things like the volume increases versus price increases, new versus continuing patients, discontinuation rates and maybe the average doses that patients are on, if I can get a follow-up also. Thanks.

Sure. Hi. This is Charlie. Thanks for the question. So we did take a price increase on January 1st of 9.4%. The thing to remember about that though is because of Medicaid, pricing regulations and so forth, that amounts to about a 7% effective increase for us over our portfolio. So we did take a price increase January 1st. We don't release particular numbers involving number of patients on therapy, average dose or that sort of thing, but what I would stress is that I think the growth in the quarter and what we're seeing, we're expecting throughout the year is really broadly based, it's more doctors, more first time prescribers, more multiple prescribers, bringing in additional patients and that was really what was - what drove the growth for the quarter.

Got you. That's helpful. Thanks. And could you talk about how you account for discounting on the income statement please.

Discounting of what?

Gross to net discount that you provide patients.

Well, because we sell directly to patients, we have actually pretty - very good insight into what sort of discounts from our full price that we expect to see. And if I could just back up a little bit for those on the call who aren't as familiar with this, essentially when we sell drugs to Medicaid patients or to the Veteran's Administration, which have a lower government mandated price than the market price, we set aside a reserve to account for the fact that we will eventually have to rebate that difference to the government. This is what all drug companies do. And so as we sell to patients, if we know that they are a Medicaid patient or a VA patient, we deduct from our revenue before reporting it the discount we expect to see. So the revenue you're seeing is in fact the funds we expect to and always have collected.

Our next question comes from Charles Duncan from Piper Jaffray. Please go ahead.

Hi. This is Sarah on for Charles. Thanks for taking the question and congrats on a good quarter. So first, just wanted to hear what you believe is driving the increased awareness and desire to treat more mild hypercortisolism. Is that a function of your sales force being out there or broader trends you see in the treatment of Cushing's.

Yeah. That's - I'm just going to repeat the question. I think one of the most important things that's really going on at this point in time is that we are seeing a broader interest in Cushing's syndrome and I think that it's really coming from two different places. One, it is really simple. The academic literature and the studies have actually now begun to show that even what was previously considered a less severe hypercortisolism is a real disease. I mean, maybe a good analogy to use is that for many, many years, you had Cushing's syndrome sort of the equivalent of as if you had high blood pressure, if your blood pressure was 220 over 110. Now, we're really starting to realize that with hypercortisolism, the equivalent of blood pressure of 160 over 90 really needs treatment. But I think the second aspect of it is we now have a treatment prior to the approval of Korlym, which was the first drug approved by the FDA for Cushing's syndrome, the only real treatments were surgical. And I think that really meant that physicians were low to actually get involved unless something was really in a severe situation. So we think both of those things, the fact that the data has now produced results showing that hypercortisolism is really a disease of consequence and the fact that there is now something to treat it with coupled with our better abilities to talk about what's going on and the increasing evidence, all really has come together to allow the market to grow.

Thanks. That's helpful. And just one follow-up on the model. Can you provide some context around the SG&A, which was somewhat quarter-over-quarter, it's just due to the additional reps and should we expect this to hold steady or continue to increase during the year?

Well, the increase in SG&A primarily does relate to increased compensation expense as we just increased our both administrative staff and clinical staff, the larger sales force and the incentive compensation that comes with the kind of the commercial results we produced in the first quarter.

And so how should we think about it for the rest of the year?

Well the overall caveat remember is that we run - our aim is to run a breakeven business. That being said, I think the - we hire sales reps astronomers, as Sean will say, as we find really good qualified people. So we may add those here and there. But generally speaking, I think the increase in SG&A spending over the course of the year shouldn't be anything particularly material.

Sarah, let me just make sure because I know you know the story well, but there are listeners on the phone who don't. I mean, our goal really has been and as we've talked about it now for years to be self-funding. And we have done that now for many, many quarters in a row. We're in the fortunate situation that the growth in our clinical programs has matched very well our ramp in our commercial activity and I think that's really the best way to think of Corcept. We are a self-funding company with a vibrant clinical platform that's in development and the growth in our commercial revenue matches it quite well.

Our next question comes from Christopher James from Ladenburg Thalmann. Please go ahead.

So on 125134, what are your plans after you get the data and specifically do you see a potential path to accelerated approval. And then as a follow-up to that, can you comment on how quickly you can start the phase 3 and what the size and scope of that could be?

All right. Well again Chris, I just want to make sure everyone is aware of the situation, kind of understand it in context. The first thing to really talk about is CORT125134's activity. For those of you who have followed the company for a while, you may remember that we really were able to show in phase 1 that the drug which is - phase 1s are really primarily done for safety purposes, was certainly safe and tolerated at the doses we were using it, but it also, as we could indicate by testing it against the use of prednisone was a potent cortisol modulator on the same order as Korlym. So to put it into phase 2 with a different kind of set of facts that you often have in a development program. Now, we are in the process of doing our phase 2 study, which is a dose finding study for patients with Cushing's syndrome, first time aim with patients and it's moving along in the pace that we've described. Now, what happens next is clearly going to be dependent on the results, but we feel confident because of what we've seen before that the results will be good results. Now, what after that? Well, the most obvious thing is that a phase 3 program will begin. And as you would expect, because we want to prepare for this, we've already begun to think about what a phase 3 study might look like and how we take that to the finish line. And the only other thing Chris I can really say at this point is we're considering all options. We're very aware of the change in regulatory stance that's been - come down in the past years. We obviously look carefully at where it's going to be in this year. And our greatest goal of course is to bring what we think is a better medication to patients as quickly as we can and will avail ourselves of any possibilities that will allow that to happen.

Thank you. That's helpful. And then just one last follow-up on the CLIA validated test, how do you envision physicians when you put it in their hands actually using the test to optimize patients and then what are your plans for future development, and particularly with second gen.

Okay. And again, Chris, I'm just going to offer a little bit more information, because I know you know the story well, but I want to make sure our listeners understand. Uptil really at this point in time, in a hypercortisolism, in Cushing's syndrome, the ways the cortisol was measured was not by its activity, but like for instance what was spilled over into the urine or what was floating around in the blood stream, but just to be frank about it, like who cares what's in your urine or in your blood stream, but nonetheless it was all the, the only way we could - that that sort of was measured. What really makes a difference is what's happening at the cellular level in terms of activity, how much are you turning on the cell to do all the downstream things that cortisol might do or frankly any other hormone might do. And so we really think that that is a much more sensitive way both to measure how patients are doing in terms of cortisol activity and even as it's - if the data supports it, even whether they in fact have hypercortisolism at all. So we were not short on where this is going to go, we're really going systematically one study at a time. Frankly, the first study was to show that there is some progress right now is due in fact as we would hypothesize, do patients with Cushing's syndrome have elevated expression of this gene compared to normal. And we'll be able to present those results as the year goes along, but ultimately we think this sort of tool much like say PSA is for prostate cancer, a real measure of what's going on at the cellular level. If it in fact comes through is a far superior way of looking at what's going on in the disease state than something like I said what spills over into a patient's urine. In some sense, what spills over into a patient's urine is like it was in diabetes when you had a test to see whether or not a dipstick in someone's urine showed glucose. Diabetes has actually moved far past that and our hope is that hypercortisolism will as well.

And our next question comes from Alan Leong from BioWatch News. Please go ahead.

Joe, Charlie, greetings and thanks. I have a question. I want to follow up actually from Chris enquiry, have you looked at gene expression assay too, the rationale behind it is also being discussed in the scientific community with respect to other indications, if I'm not mistaken metabolic, psychiatric and alcohol which are indications. Are there implications possibly beyond Cushing's for this too and could you provide any further color on this and I've always brought this up, but can you comment about possibilities as a screening tool also.

Well again just to make sure everyone understands the context of your question, Alan, yes, we think the cortisol activity is meaningful in many disease states of which Cushing's is only the most obvious and one right in front of us. We think and in fact just to digress for one second, we think tests of this type are very meaningful for other endocrinologic disease, even things that Corcept isn't working on. It just hasn't existed to this point, but to answer your question directly, we really do think that if this in fact pans out as a true test of cortisol activity that will have meaning in Cushing's syndrome, psychiatric diseases, oncologic diseases in any other place where we think hypercortisolism really has an effect. It's really a changed way and we think improved way of looking at the disease state and time will tell if hypothesis is right, but the early testing so far has really gone along in the way that we expected and hoped it would.

All right. Well, listen, thank you all very much for taking time late in the day to listen to us. We'll be back next quarter and really appreciate your interest and attention. Bye-bye.

Thank you, ladies and gentlemen. This concludes today's call. Thank you for participating. You may now disconnect.